That’s how UBS sees it; the firm upgraded Supervalu to neutral from sell this morning, saying that the concerns are “fairly priced.” That’s putting it politely, but UBS had been expecting things to get worse for the company, so yesterday’s news wasn’t any surprise.

“Though Supervalu has taken these painful decisions (from an equity point of view), we believe it is the correct strategy and will give Supervalu the best chance of turning the business around in the long-term,” UBS wrote. “However, there is lots of hard work left to do.”

Most people are expecting some kind of break-up, it seems, but given the daunting tasks facing the company, even that could be hard, as Dave Benoit makes clear over at Deal Journal.

Supervalu shares are getting shellacked this morning, down 46% on volume that’s more than nine times the daily average (in less than three hours of trading), and at $2.86 falling under the $3 mark. That’s not only a fresh 52-week low, it’s a fresh 20-year low.

Right now, a gallon of milk in one of Supervalu’s grocery stores costs more than a share of its stock.

But UBS says there are opportunities for a turnaround. The firm says the company’s big operational issue is revenue generation, not costs.

Traffic could return as the company fixes its pricing strategy and invests in the stores, but “supermarket turnarounds take a long time and currently competition is intensifying.” If the company cuts costs too much, it could hurt its ability to invest and get the stores hopping again.

The firm cut its 2013 and 2014 EPS estimates by 49%, in line with yesterday’s first-quarter miss, as well as “the effects of faster price reductions, delayed benefit to traffic, partially offset by incremental cost cutting.” The firm cut its price target to $4 from $4.50.

“Now Supervalu must do the heavy lifting to turn around the company,” UBS says.

Comments (3 of 3)

supervalue a good buy right now upon a new battle plan being anounced could cause the stock to rocket up

12:28 am July 14, 2012

Sad! wrote :

May stock holders should call for a forensic audit and find out what happened! So it doesn’t happen again.

7:33 pm July 12, 2012

Happy Chicago Shopper wrote :

I've been in Supervalu's Acme Stores out east and their Albertson's out west--not so great. But here in Chicago, Jewel-Osco is run really great and seems busy; strangely enough, it's Safeway's Dominick's stores that seem to be subject of ire and complaints here in Chicagoland. Safeway is doing well elsewhere but according to Chicagobusiness.com, they've gone from 28% market share in 1998 to 14% market share in 2012 while Supervalu's Jewel Osco has gone from 34% in 1998 to 28%.

Seems like Jewel-Osco could be one of the good assets for Supervalu. Acme and Albertson's, no.

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